Recently, we reiterated our Neutral recommendation on Genomic Health (GHDX) with a target price of $27.00.
Genomic Health reported loss per share of 1 cent in the first quarter of fiscal 2011 compared with a loss of 7 cents in the year-ago period driven by higher revenues. According to the Zacks Consensus Estimate, the company was expected to report an EPS of $0.01 during the reported quarter.
Total revenue in the reported quarter climbed 20.8% year over year to $49.8 million, marginally above the Zacks Consensus Estimate of $49 million. Product revenues (primarily from the Oncotype DX breast cancer test) climbed approximately 23% to $49.5 million in the quarter under review. Contract revenues accounted for the balance. In the reported quarter, Genomic provided more than 16,230 test results, as against more than 13,310 test results in the comparable period of 2010, representing a growth of 22%.
Genomic Health has come a long way from one-product US focused company in 2007, when 24,450 tests were delivered with a 22% penetration. In 2010, the company has transformed itself to a two-product international company when 57,000 tests were delivered with 26% penetration rate. Banking on its several strategies directed toward an increasing acceptance of the test, Genomicis well positioned to make most of the huge market potential.
Having established a strong foothold in the US market, Genomic Health is targeting the international arena. The company already has a European subsidiary established in February 2009. Moreover, the company has established exclusive distribution agreements for its Oncotype DX breast cancer test with distributors of 13 countries. International product revenue in the reported quarter increased to $4 million (8% of product revenue) compared with $1.9 million (4%) in the year-ago period.
Meanwhile, the colon cancer test, launched in January 2010, is yet to make a significant contribution to the top line. However, the situation could improve gradually as the company tries to get reimbursement for this test, which should lead to increased adoption.
Although Genomic Health is conducting multiple studies in the field of colon cancer (stage III), prostate (expected launch 2014), renal cell (expected launch 2013) and lung cancers, these tests are in the early-to-middle stages of development and are several years away from commercialization.
Since any pipeline development is poised with attendant risks, any hiccups in the process will weigh heavily on the stock. Moreover, we remain concerned about the competitive scenario.
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